Mortgage demand sluggish despite low interest rates

SUCHEERA PINIJPARAKARN
THE NATION February 6, 2014 1:00 am

DEMAND FOR mortgages this year is likely to be lower than banks expect, as fewer borrowers require home loans, even at lower interest rates.

The slowdown for the country's largest mortgage lenders in the first month reflects that consumers are delaying their decisions on buying a residence, making major developers suspend projects and shift to focus on their backlog, Chatchai Payuhanaveechai, an executive vice president at Kasikornbank, the third largest player among commercial banks, said yesterday.

There are many factors pulling down demand, with the exception to this being the low interest rate, which can help maintain the segment, he said.

Housing loans in January have not recovered from November-December, when they plunged 10-15 per cent due to the postponement of house transfers and mortgage registrations by homebuyers, demonstrating concerns over the prolonged political uncertainty.

Developers have postponed residential projects and launches scheduled for this year pending some clarity over the impacts on the overall economy. Most developers have shifted to low-rise residential projects in the provinces, where the market has been less ruffled by the political unrest.

"It is not the right time to embark on housing projects for developers facing few buyers and rising labour and building material costs," he said.

Residential sales are expected to drop nearly in half to 500,000 units this year from 950,000 units last year.

KBank's housing loan growth is expected to reach 7 per cent, compared to 6.5-9 per cent in the industry, with Bt52 billion in new loans and Bt230 billion in outstanding loans.

Siam Commercial Bank (SCB), the biggest housing lender, is considering revising down its housing loan target this year because of the protracted political shambles, said Pikun Srimahunt, a first executive vice president.

Before reviewing its target, SCB projected new housing loans of Bt100 billion this year, declining from Bt130 billion last year.

SCB is carefully monitoring borrowers with monthly income of lower than Bt15,000 and the self-employed.

Krungthai Bank, the second-largest mortgage lender, admitted that chances are slim to achieve its housing loan growth target of 15 per cent after new loans last month dropped 30 per cent from the same period a year earlier.

Weidt Nuchjalearn, a first senior executive vice president, said the bank expects the political charade could drag on for five to six months. Developers in Bangkok have decided to suspend projects and shift to provinces where there is still demand such as Phuket and Hua Hin.

Thaweelarp Rittapirom, an executive vice president with Bangkok Bank, said the political crisis has taken a toll on housing buyers and mortgage loans. The bank expects that sentiment could drag on to next quarter before improving in the second half.

"A home loan is a long-term loan. Buyers have taken a long time in making decisions, and with the current political situation, buyers have to wait and see because we have never seen this situation before," he said.

Developers have to adjust their business plans to deal with the few buyers. It is possible that housing sales this year will be lower than last year.